How are startups spending record amounts of funding? On jobs, not offices
(originally published in Boston Globe)
July 27, 2021
By Scott Kirsner, Globe Correspondent
Chief executive David Schenkein passed his office at Agios Pharmaceuticals Inc. in Cambridge on July 10, 2018. Massachusetts startups have received record amounts of funding so far this year, but for some, it is not going toward office spaces. CRAIG F. WALKER/GLOBE STAFF
In the first half of 2021, a record $17.4 billion flowed into the bank accounts of Massachusetts startups. If funding continues at that pace, investments in startups this year would double 2020′s total.
I wanted to understand how that money is being spent differently as we tentatively emerge from the pandemic, and what that will mean for the local economy. So I spoke with a sample group of startup founders who’ll be spending that money, and the venture capitalists who’ve been doling it out. There’s good news and bad news.
First, if you are a living human who is in some way employable by a biotech or tech company, someone wants to hire you at a healthy salary.
“It’s such a crazy market, and the competition for people has gone bananas,” says Alasdair McLean-Foreman, chief executive of Teikametrics. The Boston company helps customers spend more intelligently when they advertise on e-commerce sites such as Walmart and Amazon. “If you were asking me which line item in our spending has gone up, it’s the recruiting costs. We’ve hired recruiters in-house, and we still use outside agencies.” Teikametrics raised $40 million from investors earlier this month.
I couldn’t find anyone who said they were finding ways to economize on salaries by hiring remote workers in Bangor or Butte, Mont. “In growth sectors where there is tremendous demand for talent, you pay what that talent requires you to pay,” regardless of where people live, says David Frankel, a partner at Founder Collective, the Cambridge-based venture capital firm.
Chris Bell’s startup, Perch, was founded in late 2019, and he says he took a frugal approach to hiring through much of last year. He says he personally approved every job posting, and the company took a “don’t hire someone unless we needed them yesterday” approach. Perch is buying up small brands that have had success selling products on Amazon and seeking to find economies of scale by combining them into a single company. The company raised $775 million in May. In 2021, Bell says, “we are hiring into roles that we expect to have more of a medium-term payoff, and we’re investing to catch up in hiring in places we under-hired in the pandemic, mostly infrastructure functions like human resources and finance.”
Another piece of good news involves biotech, and companies that are developing physical products like robots, next-generation batteries, and 3D printers. They still need labs to develop products, so they’ve continued to occupy and lease new office space throughout the pandemic. At least half of that $17.4 billion went to that sort of company. If there is a renaissance in startups returning to the office — and in people buying breakfast sandwiches and after-work beers — it will be driven by those companies, which are peppered across the Seaport District, Somerville, Cambridge, Waltham, Lexington, and the ‘burbs.
Davide Marini runs Inkbit, a maker of more intelligent 3D printers, based in Medford. The company’s printers can analyze an object as they’re producing it, correcting any tiny imperfections before they balloon into big mistakes. Inkbit raised $30 million in new funding this month.
“Building this printer is extremely difficult,” Marini says. “We are working with new materials, new hardware, and new software, including artificial intelligence. People have to work physically at the machine — it just has to happen this way.” Some of the company’s 30 employees, including engineers, do have the flexibility to work on projects at home — and some even have lab benches set up, and printer components, to work on, he says. But the company also saw the need for more office and lab space. “We found a good deal, because during COVID, nobody wanted to rent office space,” Marini says. He signed a lease in February, for more than six times the amount of space the company previously occupied.
Biotech venture capitalist Bruce Booth says that the companies in which he invests had scientists working in the lab over the last 16 months and continue to want that.
Now, for the bad — or at least mixed — news.
A good chunk of the $17.4 billion went to companies that make software or sell some kind of services, and many of those companies no longer see the need to have a large number of people sitting in an office.
“We have no office space at the moment,” says Shirley Mills, chief financial officer of Shoobx, which helps startups manage paperwork related to their fundraising activity. “So that went from 15 percent of our expenses to zero.” The company’s former office space was in Cambridge’s Alewife section. Mills anticipates the need for more “intermittent” company get-togethers, perhaps once or twice a month but hasn’t yet found the ideal place to do those. (I’d call that mixed news — it’s a potential opportunity for hotels, historic sites, or college campuses to bring in additional money by hosting these episodic “off-site” meetings or “work weeks,” when everybody gets together for face-to-face time.)
Shoobx CEO Jason Furtado says that he had already tried to create a “remote-friendly” culture before the pandemic but that more candidates outside of Boston are now “comfortable coming to work with us.” About half of Shoobx’s recent hires live outside of Massachusetts, Furtado says. His company raised an undisclosed amount of funding earlier in 2021.
McLean-Foreman at Teikametrics was about to lease a floor of a downtown Boston building in March 2020. “Thank goodness we didn’t do that,” he says. After trying to sublet the company’s existing space in the Fort Point Channel neighborhood, and considering switching to an office in a shared space such as WeWork, McLean-Foreman decided to keep the existing digs — primarily for larger, periodic team gatherings, or for individuals who prefer to use a desk outside of their home. Out of the company’s roughly 100 Boston employees, he estimates that perhaps 10 use it on any given day.
But McLean-Foreman also says that in learning how to communicate and collaborate better when everyone was at home — rather than having a sharp divide between headquarters employees and remote employees — his thinking about needing to build the employee base and hire primarily in Boston has changed. Teikametrics has “gone very big,” he says, on hiring people and acquiring small startups in India, Israel, China, and Seattle. “If you look back, would we have done those so boldly without the pandemic? I don’t think so,” he says.
It’s hard to tell how often that kind of decision is being made in 2021 with the money raised so far this year, but there’s no doubt it will have at least some impact on the future vitality of this town.